800,000 return for second superannuation withdrawal as COVID-19 flattens returns

800,000 return for second superannuation withdrawal as COVID-19 flattens returns

Applications to cash out super balances for a second time have hit 800,000 in the first 12 days of the financial year, new data from the Australian Prudential Regulation Authority (APRA) shows.

It was a jump of more than 450,000 since the first week of July, with APRA recording 346,000 repeat applications between July 1 and 5

Super funds received 581,000 applications from members to access their retirement savings in the week to July 12, with 472,000, or 81 per cent, making a request for the second time. Nineteen per cent of claims, or 109,000 applications, were from members applying to withdraw for the first time.

More than $6 billion has been paid to 734,000 members in the week to July 12.

Since the scheme began on April 20, Australians have applied to withdraw $28 billion of their super in total. About 3.3 million super payments have been made, with $25.3 billion paid.

On average, repeat applicants have requested to take out $8,755, while the overall average is about $1,000 lower.

The early release of super scheme, now in its second round, was designed to help coronavirus-affected workers manage the financial impacts of COVID-19 by allowing them to access their retirement savings.

Flat super returns as COVID-19 hits nest eggs

The APRA data on the early release of super comes as new Chant West research shows that median growth superannuation funds, which are 61-80 per cent invested in growth assets such as shares and property, lost 0.5 per cent in the 2019-20 financial year.

But more positive returns of 6.5 per cent were seen in the three months to June 30.

Retirement savings lost 3.3 per cent for the financial year up until April 2020, a signal that funds may have managed to claw back returns in the two remaining months of the fiscal year. 

Chant West senior investment manager Mano Mohankumar said it had been a “topsy turvy” year for super balances.

“While the end result was marginally negative, that still represents an excellent outcome given the economic damage wrought by the COVID-19 pandemic in Australia and globally,” he said, adding that super funds have had a near 11-year growth streak until early 2020.

How the super market changed throughout the year

Mr Mohankumar noted that there have been three stages of changes in the 2019-20 financial year.

  • In the seven months to January 2020, growth funds gained 6.4 per cent.
  • February and March were the worst-performing months. COVID-19 took its toll on the share markets, and funds lost 12 per cent in the span of two months.
  • Recovery began in the June quarter, when super balances leaped back 6.5 per cent.

Mr Mohankumar said the results for the financial year were “better than expected”, as the investment portfolios of super funds are well-diversified. Diversification may help protect returns in times when share markets are weaker, he noted.

“The better performing funds over the year were generally those that had lower allocations to Australian shares and higher allocations to international shares and bonds. Funds would also have benefited from having low exposure to listed property and listed infrastructure.”

Traditional diversified super fund performance (results to June 30, 2020)

Risk category Exposure to growth assets (%) Past 1 month (%) Past 3 months (%) Past 1 year (%) Past 5 years (%)
All growth 96 - 100 1.1 9.7 -2.1 6.6
High growth 81 - 95 1.0 7.9 -0.9 6.7
Growth 61 – 80 0.8 6.5 -0.5 6.2
Balanced 41 – 60 0.7 4.7 0.3 4.8
Conservative 21 - 40 0.5 3.1 1.0 4.2

Note: Performance is shown net of investment fees and tax. It is before administration fees and adviser commissions.

Source: Chant West.

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Learn more about superannuation

How do you calculate superannuation?

Superannuation is calculated at the rate of 9.5 per cent of your gross salary and wages. So if you had a salary of $50,000, your superannuation would be 9.5 per cent of that, or $4,750. This would be paid on top of your salary.

The ‘superannuation guarantee’, as it is known, has been at 9.5 per cent since the 2014-15 financial year. It is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

What is a superannuation fund?

A superannuation fund is an institution that is legally allowed to hold and invest your superannuation. There are more than 200 different superannuation funds in Australia. They come in five different types:

  • Retail funds
  • Industry funds
  • Public sector funds
  • Corporate funds
  • Self-managed super funds

Retail funds are usually run by banks or investment companies.

Industry funds were originally designed for workers from a particular industry, but are now open to anyone.

Public sector funds were originally designed for people working for federal or state government departments. Most are still reserved for government employees.

Corporate funds are arranged by employers for their employees.

Self-managed super funds are private superannuation funds that allow people to directly invest their money.

When did superannuation start?

Australia’s modern superannuation system – in which employers make compulsory contributions to their employees – started in 1992. However, before that, there were various restricted superannuation schemes applying to certain employees in certain industries. The very first superannuation scheme was introduced in the 19th century.

Am I entitled to superannuation if I'm not an Australian citizen?

Yes, permanent and temporary residents are entitled to superannuation.

What is salary sacrificing?

A salary sacrifice is where your employer takes part of your pre-tax salary and pays it directly into your superannuation account. Salary sacrifices come out of your pre-tax income, whereas personal contributions come out of your after-tax income.

What happens to my insurance cover if I change superannuation funds?

Some superannuation funds will allow you to transfer your insurance cover, without interruption, if you switch. However, others won’t. So it’s important you check before changing funds.

How is superannuation regulated?

The Australian Prudential Regulation Authority (APRA) regulates ordinary superannuation accounts. Self-managed superannuation funds (SMSFs) are regulated by the Australian Taxation Office.

How do I choose the right superannuation fund?

Different superannuation funds charge different fees, offer different insurances, offer different investment options and have different performance histories.

So you need to ask yourself these four questions when comparing superannuation funds:

  • How many fees would I have to pay and what would they cost?
  • What insurances are available and how much would they cost?
  • What investment options does it offer? How would they match my risk profile and financial needs?
  • How have these investment options performed historically?

Can my employer use money from my superannuation account?

No, your employer can’t touch the money that is paid into your superannuation account.

What are reportable employer superannuation contributions?

Reportable employer superannuation contributions are special contributions that an employer makes on top of the regular compulsory contributions. One example would be contributions made as part of a salary sacrifice arrangement.

Is superannuation compulsory?

Superannuation is compulsory. Generally speaking, it can’t be touched until you’re at least 55 years old.

What are ethical investment superannuation funds?

Ethical investment funds limit themselves to making ‘ethical’ investments (which each fund defines according to its own principles). For example, ethical funds might avoid investing in companies or industries that are linked to human suffering or environmental damage.

How does superannuation work?

Superannuation is paid by employers to employees, at least once every three months. The ‘superannuation guarantee’ is currently 9.5 per cent – which means that your employer must pay you superannuation equivalent to 9.5 per cent of your salary. The guarantee is scheduled to rise to 10.0 per cent in 2021-22, 10.5 per cent in 2022-23, 11.0 per cent in 2023-24, 11.5 per cent in 2024-25 and 12.0 per cent in 2025-26.

Superannuation is generally taxed at 15 per cent. However, if you earn less than $37,000, you will be automatically reimbursed up to $500 of the tax you paid. Also, if your income plus concessional superannuation contributions exceed $250,000, you will also be charged Division 293 tax. This is an extra 15 per cent tax on your concessional contributions or the amount above $250,000 – whichever is lesser.

You can withdraw your superannuation when you meet the ‘conditions of release’. The conditions of release say you can claim your super when you reach:

  • Age 65
  • Your ‘preservation age’ and retire
  • Your preservation age and begin a ‘transition to retirement’ while still working

 

What is the difference between accumulation and defined benefit funds?

A majority of Australians are in accumulation funds. These funds grow according to the amount of money invested and the return on that money.

A minority of Australians are in defined benefit funds – many of which are now closed to new members. These funds give payouts according to specific rules, such as how long the worker has been with their employer and their final salary before they retired.